Despite an already strong run, Offcn Education Technology Co., Ltd. (SZSE:002607) shares have been powering on, with a gain of 26% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 22% in the last twelve months.

Following the firm bounce in price, Offcn Education Technology may be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 6.9x, since almost half of all companies in the Consumer Services in China have P/S ratios under 5x and even P/S lower than 2x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

How Has Offcn Education Technology Performed Recently?

With revenue that's retreating more than the industry's average of late, Offcn Education Technology has been very sluggish. Perhaps the market is predicting a change in fortunes for the company and is expecting them to blow past the rest of the industry, elevating the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is Offcn Education Technology's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Offcn Education Technology's is when the company's growth is on track to outshine the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 35%. As a result, revenue from three years ago have also fallen 79% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 34% during the coming year according to the three analysts following the company. With the industry predicted to deliver 36% growth , the company is positioned for a comparable revenue result.

With this in consideration, we find it intriguing that Offcn Education Technology's P/S is higher than its industry peers. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

Offcn Education Technology shares have taken a big step in a northerly direction, but its P/S is elevated as a result. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Given Offcn Education Technology's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

Before you take the next step, you should know about the 2 warning signs for Offcn Education Technology that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.